US index futures are European bourses reversed earlier losses and traded higher, led by small-caps, as Treasuries resumed their slide after Friday's gains while oil dropped on hopes that a diplomatic solution may emerge to the Israel-Hamas conflict: Secretary of State Blinken has returned to Israel and Joe Biden could follow on Wednesday or Thursday according to unconfirmed reports, as they seek to avoid an escalation. As of 7:45am, S&P futures were 0.3% higher while Nasdaq 100 futs gained 0.1% after declines on Wall Street at the end of last week. The US Dollar started the session lower and commodities came for sale across all three complexes. Brent crude oil held near $91 a barrel, after surging almost 6% on Friday. Gold fell but bitcoin surged.
In premarket trading, Pfizer dropped more than 3% after the pharmaceutical giant slashed its revenue and earnings forecasts. Apple dropped as much as 1.7% after a study suggested the iPhone 15 is selling far worse in China than its predecessor. Market tracker Counterpoint Research estimated sales of the company’s new iPhone are down 4.5% compared with the iPhone 14 over their first 17 days after release. European energy stocks were boosted by recent gains in oil prices, with Shell hitting a record high. Semiconductor stocks in Europe and US underperformed after Bloomberg reported that the US plans to close the loopholes in rules restricting China’s access to advanced semiconductors and chipmaking gear. Meanwhile, crypto-exposed stocks rose tracking the Bitcoin price as the digital asset rose toward the $28,000 level. Here are some other notable premarket movers:
Markets were calmer Monday after last week’s rush into haven assets, as investors await further developments in the Middle East. As BBG notes, the war is an additional concern for traders already busy interpreting the outlook for the economy and interest rates, just as the latest earnings reporting season gets into full swing.
As the earnings season ramps up, Wall Street strategists warned that the outlook for corporate profits is weakening and could remain subdued. Morgan Stanley’s Michael Wilson said earnings revisions breadth — referring to the number of stocks seeing upgrades versus downgrades — for the S&P 500 has fallen sharply over the past couple of weeks. Citigroup’s index of earnings revisions shows downgrades have outpaced upgrades for four straight weeks ahead of the reporting season. JPMorgan strategist Mislav Matejka expects this to continue. Citigroup Inc.’s index of earnings revisions shows downgrades have outpaced upgrades for four straight weeks ahead of the reporting season. JPMorgan strategist Mislav Matejka expects this to continue.
That said, Geopolitics remains front and center: weekend reports that Biden is considering an Israel trip boosting hopes for a diplomatic solution as the US backchannels with Iran; meanwhile Bloomberg reported that the US continues to reduce/restrict China’s access to chips pushing Chinese stocks lower. The House is set to vote on the next speaker is tomorrow.
Over the weekend US officials rushed to speak with Middle Eastern nations — including back-channel talks with Iran — to contain the conflict. President Joe Biden is weighing visiting Israel himself and German Chancellor Olaf Scholz is expected to arrive Tuesday, according to Bild Zeitung. Jordan’s King Abdullah II is in Rome, where he’s expected to meet Prime Minister Giorgia Meloni as part of an effort to ease tensions.
Elsewhere on the political front, Polish equities jumped the most since May 2022 and the zloty rallied as a bloc of pro-European opposition parties appeared on track to unseat the nationalist government.
Meanwhile, the yield rollercoaster is back with big swings returning to Treasuries, where 10-year yields jumped and clawed back much of last week’s 19 basis-point drop, while those on the 30-year climbed 10 basis points.
“The geopolitical tension in the Middle East remains the key focus of the market,” said Luke Hickmore, investment director at Abrdn Investment Management. “It might seem calmer now, but if the war widens to include other parts of the area then that means more pressure on oil and more uncertainty for the market to cope with. It’s going to be a big driver here.”
European stocks are slightly lower with the Stoxx 600 down 0.1%. Mining and energy names are outperforming. Major markets are mostly lower with only the UK and SXXP in the green. Regional bond yields are higher helping banks outperform with energy and GLP themes also acting well. Energy prices remain the key to UK/EU recession outcomes; BOE seen on hold. In individual stock moves Monday, Manchester United Plc slumped 18% after Bloomberg News reported that a Qatari group of investors had withdrawn its bid to buy the English football club. Here are some of the most notable European movers:
Earlier in the session, Asian stocks fell in the start of the week as a selloff in the region’s semiconductor stocks and ongoing tensions in the Middle East sap risk appetite. The MSCI Asia Pacific Index fell as much as 0.9%, extending losses from Friday, with Taiwan Semiconductor, and Samsung among the biggest drags. A gauge of the region’s chipmakers fell 1.9% after Bloomberg reported that the US is considering further restrictions to curb China’s access to advance semiconductors. Meanwhile, Indonesia’s Gojek Tokopedia tumbles to a fresh low after its co-founder sold shares.
In rates, treasuries are in the red with US 10-year yields rising 9bps to 4.70% as bunds and gilts follow suit. Treasuries were cheaper across the curve in a bear-steepening move with 30-year yields cheaper by 10bp on the day. Similar losses seen across core European rates as flight-to-quality bid from Friday is faded following diplomatic efforts to contain the Israel-Hamas conflict. Beyond Middle East conflict, focal points this week include a packed Fed speaker slate headed by Chair Powell at the Economic Club of New York on Thursday. US yields cheaper by 1.5bp-10bp across the curve with long-end-led losses steepening 2s10s, 5s30s spreads by ~7bp and ~5bp on the day; 10-year yields around 4.69% with bunds and gilts outperforming by 3bp and 1bp in the sector. US auctions this week include $13b 20-year bond reopening Wednesday and $22b 5-year TIPS new issue Thursday
In FX, the Bloomberg Dollar Spot Index falls 0.1%. The Swiss franc is the weakest of the G-10 currencies, falling 0.1% versus the greenback. The kiwi rose 0.6%, leading Group-of-10 gains against the dollar climbing as much as 0.8% to an intra-day high of 0.5929 after the New Zealand center-right opposition party won Saturday’s election.
In commodities, Brent futures drop 0.3% to trade near $90.60. Spot gold loses 1% to around $1,914.
Bitcoin jumped but failed to breach the USD 28k mark in European hours and as such remains just shy of the early-October best around the figure. Action which follows gains in APAC trade which have been attributed by some to the SEC's decision not to appeal the Grayscale ruling.
US economic data slate includes October Empire manufacturing at 8:30am the Budget Statement; data this week includes retail sales, industrial production, housing starts/building permits and existing home sales. Scheduled Fed speakers include Harker (10:30am and 4:30pm); this week includes Williams, Bowman, Barkin, Kashkari, Waller, Harker, Cook, Jefferson, Powell, Goolsbee, Barr, Bostic, Logan and Mester
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Asia Pacific stocks were mostly lower amid ongoing geopolitical concerns with the Israel-Hamas conflict threatening to spill over to neighbours in the region. ASX 200 was subdued amid underperformance in tech, telecoms and industrials but with losses stemmed by resilience in commodity-related industries. Nikkei 225 underperformed and gapped below the 32,000 level despite the lack of fresh pertinent catalysts. Hang Seng and Shanghai Comp. saw somewhat varied price action with the Hong Kong benchmark choppy and the mainland ultimately pressured as participants digested several recent developments including the PBoC’s decision to maintain the 1-year MLF rate, as expected, with the operation the largest MLF net injection since December 2020. Furthermore, it was confirmed that the US is to take steps to prevent American chipmakers from selling AI chips to China that circumvent government restrictions and that China’s securities regulator will restrict securities lending which local press suggested could help support markets as it would tighten rules for short selling.
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European bourses are under modest pressure as the weekend's deluge of geopolitical developments keeps tensions elevated and the tone tentative, Euro Stoxx 50 -0.2%. As such, sectors are tilting into the red overall despite an initially firmer start to European trade with the morning's main movers driven by individual updates around stocks including Telecom Italia, Atos and Ocado. Stateside, futures are slightly firmer on the session awaiting fresh catalysts with the aforementioned tentative tone capping and real action, ES +0.1%. Apple (AAPL) iPhone 15 sales -4.5% in the China debut YY, via Counterpoint.
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DB's Jim Reid concludes the overnight wrap
Morning from New York. I say morning but it’s only just gone midnight here after a late and delayed landing. That left plenty of time to write this on the plane after a busy weekend celebrating my wife’s 50th birthday. It ended with her going to see Madonna live last night while I travelled. I’m not entirely sure who got the short straw.
In the overnight session there has been some relief that a ground offensive hasn't begun yet in Gaza and that diplomatic channels seems to be open for now. President Biden is considering a trip to Israel in the next week which will be an important event. For now we are retracing some of Friday's flight to quality bid as markets feared a weekend of escalation. Yields on 10yr USTs (+5.18 bps) are at 4.66% as we go to print. S&P 500 (+0.20%) and NASDAQ 100 (+0.26%) futures have edged higher with Oil stable for now after a spike on Friday.
Most Asian equity markets are retreating this morning though as Friday's sentiment spills over with additional news that the US plans new tighter curbs on China's access to advanced semiconductor chips. As I check my screens, the Nikkei (-1.64%) is the biggest underperformer across the region with the KOSPI (-1.06%), the CSI (-0.80%), the Shanghai Composite (-0.56%) and the Hang Seng (-0.39%) also dropping in early trade.
Outside of events in the Middle East it looks a busy week but without an obvious focal point. There is a barrage of Fed speak before their media black-out at the weekend but Powell’s speech at the Economic Club of New York on Thursday will be the highlight. We detail who is speaking in our day-by-day calendar at the end but DB’s Brett Ryan’s week ahead gives a bit more detail of their various biases here. The key data point will likely be US retail sales (tomorrow) which we expect to decline (-0.1%) after two strong months, but we also have a lot of US housing data with the NAHB (tomorrow), starts/permits (Wednesday) and existing home sales (Thursday). US weekly jobless claims (Thursday) corresponds to payrolls survey week so will be used to fine tune estimates. Staying with the US, earnings season will start to get into gear with the highlights being Bank of America, Goldman Sachs and Johnson and Johnson (tomorrow), Morgan Stanley, Tesla, Netflix, ASML, and Procter & Gamble (Wednesday), TSMC (Thursday) and American Express (Friday). Tesla and Netflix probably have the most ability to move macro markets given their size.
China sees its monthly activity dump on Wednesday where signs of a turnaround will be scrutinised. This is the same day as UK inflation comes out (preview here). The UK labour market data tomorrow is interesting as unemployment is now 0.8pp above the lows at 4.3% and has increased more than anywhere else in the DM world. UK retail sales is out on Friday.
In Europe we have the ZEW survey in Germany (tomorrow) and the PPI report on Friday, with retail sales for France also due that day. With regards to German PPI it's expected to hit -14.2% YoY from -12.6% the previous month so crazy numbers historically after peaking at an even more crazy +45.8% YoY just over a year ago.
In Japan the national CPI on Friday will be the last before the October 31st BoJ meeting where YCC is likely in our opinion to be abandoned. So an important print.
Now, looking back on last week. We closed out the week with an air of nervousness surrounding events in the Middle East after it was reported on Friday that the Israeli army announced a 24-hour evacuation order for over one million civilians in north Gaza. On Friday, we also had the University of Michigan’s consumer sentiment preliminary survey results for October. The headline result surprised significantly to the downside at 63.0 (vs 67.0 expected), down from 68.1 in September. 5-to-10-year inflation expectations rose to 3.0% (vs 2.8% expected), and 1-year inflation expectations jumped from 3.2% to 3.8% (vs 3.2% expected). A few months of higher energy prices seems to now be filtering through to short-run expectations and thus complicating central banks’ policy choices. Fortunately for now long-run expectations remain under some control.
Ultimately, these inflation numbers were secondary to news of the Israeli army’s evacuation order. US 10yr Treasury yields fell -8.6bps on Friday and -19.0bps on the week as investors fled to quality, the largest weekly decline in yields since mid-July. 30yr yields also fell, down -21.4bps week-on-week (and -10.1bps on Friday), the largest weekly decline for 30yr yields since the first week of 2023. Interesting we had one of the largest rises in 30yr yields in the last decade on Thursday with a poor auction so there is an element that Treasuries are a bit of a reluctant flight to quality flow recipient. German 10yr bund yields followed the global picture, falling -14.8bps week-on-week (and -4.9bps on Friday) .
With risk-off sentiment dominating, equities struggled at the end of the week. The S&P 500 dipped -0.50% on Friday, although it was still up +0.45% week-on-week. Technology was buffeted on Friday, as the tech-heavy NASDAQ dropped -1.23% (-0.18% on the week). Weak performance was most evident for the mega caps as the Magnificent Seven index fell -2.05% (-0.39% on the week), led by the likes of Tesla (-2.99%) and Nvidia (-3.16%). In Europe, the STOXX 600 slipped -0.98% on Friday but was up +0.96% week-on-week.
Oil spiked sharply on Friday on the news in Israel, as concerns over risks to oil supply from the Middle East rose. It was also boosted by news of the US sanctioning two shipping companies for violating the price cap on Russian oil. Brent broke through the $90/bbl level, rising +5.69% to $90.89/bbl. The +7.46% weekly increase, is its largest since February. WTI crude climbed +5.77% to $87.69/bbl, and +5.92% in weekly terms. With the geopolitical backdrop increasingly fragile, the haven of gold also rose +3.28% on Friday to $1933/ounce (and +5.45% week-on-week), its greatest daily increase since the banking stress in March. However, European gas futures took the prize for the week, after prices rose +51.0% week-on-week to EUR 55.35/MWh (and +3.87% on Friday), its greatest percentage increase since March 2022 just after Russia’s invasion of Ukraine.